Considering an independent contractor agreement

If the prospect of setting up your own office and finding a loan appears overwhelming, you may want to consider becoming an independent contractor (IC). This option gives you the benefits of owning your own business and bringing in your own patients, while keeping your startup costs low by working within another office and using their facilities, equipment, and staff.

Why would a doctor want to take on an independent contractor? The doctor may have an extra office and want the additional income from renting out this space. Or, the doctor may only work a few days a week, and having another doctor to work the other days would be another way to decrease expenses. It is also convenient to have an IC in the practice to provide patient care when the owner doctor is ill, attending continuing education seminars, and taking vacations.

You can consider several types of IC agreements. One that works well is the “sublease” arrangement, in which you run your office within another office. In some cases, you might actually rent a specific space in which to operate. You would pay rent for the use of the space, along with time of the staff to answer your phone, receive mail, and possibly do your billing and collections.

Another variation is to pay a percentage of your collections back to the other doctor for overhead. How much you would pay depends on the services the office provides. Note: This arrangement may be considered a “group practice,” and as such would be subject to the Stark Laws.

For more information on the Stark Laws, read “Group practice and patient referral laws: Is your practice in compliance?”

In another form of independent contractor relationship, you would work under another doctor, during specified hours and for a percentage of the collections from your work. This type of IC relationship must be structured carefully, so it is not considered as an employment relationship.

The IRS takes several factors into consideration in determining whether a relationship is employment or independent contractor, and the agency assumes that the worker is an employee unless there is compelling evidence that the person is an independent contractor.

If a question arises about your status, learn more about what the IRS considers when making a determination on this issue. Refer to form SS-8: Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

MORE ON THE SUBJECT
“Starting your career: Which ‘door’ will you choose?” is an excellent recent article that discusses independent contractor status.

For an attorney’s advice on what to look for in an IC contract, see “Employee or independent contractor?”

To get a better understanding of the differences between independent contractors and employees, see “Ask the attorney: IRS decides contractor status.”CONTRACT POINTS

You and the other doctor will need to consult with an attorney to prepare a contract. Here are some issues you both need to agree upon before you talk to the attorney:

• Who pays whom? How and when are those payment made? What is the basis for the payments (rent vs. collections)?

• How will you separate property owned by both of you (instruments, tables, etc.)?

• How and where will the patient records be maintained? Whose property are the patient records?

• Do you have the right to work for others? (You should have this right, as part of the definition of independent contractor.)

• Under what circumstances may the agreement be terminated by each party? Both of you should have the right to terminate the agreement for any reason with appropriate notice. The agreement may be terminated automatically if you lose your license or for violations of law or ethics.

• What permits and licenses will you need to obtain before starting into practice?

• What is the term (length) of the agreement?

• What happens to your patients upon termination? (As an independent contractor, you should be able to take your patients with you.)

• What restrictions are placed on your solicitation of employees or patients? This restriction is common in IC agreements.

• What restrictions are placed on your disclosure of confidential information about the practice? (This is also common.)

CONSIDERATIONS FOR THE CONTRACTOR

Before making a decision about becoming an independent contract, consider that as an independent contractor, you:

• Need to set up your own legal form of business (sole proprietor, LLC, or other).

• Must pay for your own malpractice insurance and to provide proof of that insurance to the other doctor. You will probably have to agree to a “hold harmless” agreement with the other doctor, meaning that he or she cannot be held liable for your actions in providing care to patients.

• Should get insurance on any of your property that is located in the office.

• Will need to set aside money to pay your self-employment taxes. (Social Security and Medicare) and your federal income tax withholding. The doctor with whom you’ll be working is not responsible for these payments.

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